New York, August 23, 2011 -- Moody's today assigned Aa3 ratings to PepsiCo's bond deal with $500
million 3-year and $750 million 10-year tranches.
The rating outlook is stable.
RATINGS RATIONALE
PEP's Aa3 long-term rating reflects its strong brand franchises
in snack foods and beverages, global reach, solid innovation
pipelines, efficient operations, and extensive and multifaceted
distribution network, as well as its good liquidity and continued
solid financial performance. These factors are offset by higher
leverage after the bottler and Wimm-Bill-Dann acquisitions.
While the company has been challenged to achieve volume growth,
especially in carbonated soft drinks in mature markets, is has good
growth prospects in international markets and continues a strong innovation
program.
The integration of the bottlers, which closed in early 2010,
should allow for synergies, which PEP now estimates to be in the
$550 million range by 2012. The integration has been going
smoothly so far, and we do not expect significant integration risks
going forward given the close cooperation within the system historically.
We note that as a result of the bottler acquisition, debt at subsidiaries
will exceed the threshold with which we are typically comfortable (initially
over 50% of debt at subs). However cash flows are more heavily
weighted to PepsiCo (about 80%) which helps to mitigate the risk
of structural subordination. Nevertheless, we expect the
debt at subsidiaries to diminish over time and to be replaced by debt
at the PepsiCo level such that subsidiary debt will be at or below 20%
of total debt by 2012.
The principal methodology used in rating Pepsi Bottling Group, Bottling
Group LLC and Pepsi Americas was Global Soft Beverage rating methodology
published in December 2009.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
The last rating action for the PepsiCo group was on October 6th when we
upgraded the bottlers to Aa3 based on PepsiCo's guarantee of their legacy
debt.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
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in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not an auditor
and cannot in every instance independently verify or validate information
received in the rating process.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
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it believes is the most reliable and accurate based on the information
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Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
New York
Linda Montag
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service, Inc.
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JOURNALISTS: 212-553-0376
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Moody's assigns Aa3 to Pepsi bonds